They celebrated the 40th birthday of The Vanguard Group recently in Malvern, Pa.
More accurately, they marked the passing of the date, May 1, 1975, that launched what is now the world’s largest fund company.
They didn’t hold a big party and no one had cake. Sure, there was a small keepsake for employees (think desk toy), but it seems many workers at the company have been too busy to pick theirs up yet.
At Vanguard, they’re too cheap to spend real dollars on frivolous celebration, or on anything impractical, and investors have come to feel pretty similarly over the past four decades.
Whether you own a Vanguard fund or not — and the firm has taken in nearly a quarter out of every dollar that has been invested long-term into mutual funds and ETFs since 2013, while also dominating the fund-flow statistics for more than half of its 40 years — your thinking as an investor has been influenced more than you might recognize by the company started by Jack Bogle.
What started as an outfit ridiculed by the competition as “an investment company for do-it-yourselfers” became the dominant force in the industry by simply being a good steward of people’s money.
Ultimately, the general public caught on. The mindset changed to where it was less about do-it-yourself than about “want-it-yourself,” meaning that investors at least wanted what Vanguard was selling, low-cost, consistent money-management that enables reasonable expectations and develops the confidence to stick with a long-term savings plan.
That’s led to Vanguard now having more than $3 trillion in assets domestically; by comparison, every other fund company combined has about $16 trillion, according to the Investment Company Institute.
Since you are the steward of your own money, it makes sense to look at the key components that are the cornerstones of Vanguard’s success and — whether using Vanguard products or not — make them pillars of your own strategy.
Vanguard’s 40 years of history should have convinced all investors by now that:
Costs matter: The less you pay a money manager, the more you keep for yourself.
Expenses come straight off the top, and you pay them both in good markets and bad, reducing your gains and adding to your losses.
Always consider cost as part of your investment strategy. Without a good answer for the question “Why pay more?” you probably shouldn’t pay more.
Unless you believe you will get something positive from paying a premium price, save those pennies and let them add up in your favor.
Patience matters too: Bogle tells great stories from the company’s early days, about how he was ridiculed for his ideas and strategies about indexing and low-cost investing and more, but he never wavered from his fundamental belief that doing the right things pays off in time.
Vanguard was built on the idea that investors do the best when they capture the long-term trends of the market, simply owning various asset classes for years or decades.
Sure, everyone would like to get rich quick, but the real point is to get rich, and staying patient and investing regularly in all market conditions, at low costs, goes a long way to making it happen.
Starting small leads to finishing big: Bogle started Vanguard small — he never dreamed of a $3 trillion organization — and it’s easy to find dedicated Vanguard investors who started with nothing, worried about the costs and just plowed annual retirement-program contributions or extra cash into index funds for decades. Today, they are proof that you can, through careful savings and perseverance, wind up, as Vanguard did, with assets beyond what you thought possible at the start.
You must invest regularly: Vanguard built itself on the backs of investors who slug money into their accounts every month or quarter, people who are always trying to build wealth and always contributing more to their savings, rather than counting on a fund company and the market to save for them by generating excess returns.
Savvy management can make up for a shortfall, but only to a point. You don’t reach your goals – and Vanguard didn’t amass its trillions – without setting aside adequate dollars to make it happen.
Avoid complacency: As much as Vanguard practices and preaches long-term investing, it also runs its actively managed funds with high expectations and is always looking for improved solutions.
For example, as indexing methods have been refined and improved, the company has shifted some of its funds from established benchmarks to indexes that management believes are “better.” In addition, in cases where sub-advisers — outside money-management firms contracted to run a fund — have been disappointing, Vanguard has made changes as needed.
The company doesn’t rush into any of these moves — critics say Vanguard should more regularly fire underperforming sub-advisers — but when management is convinced there is a way to cut costs and/or improve results, changes are made.
It’s best to ignore trends, fads and anything where slick packaging makes you forget that something is an impulse buy: Bogle has always said that the managers came up with the fund ideas at Vanguard, and then went to marketing to promote the next product. At many firms, it’s the other way around, where the sales staff comes up with something it thinks will generate a buzz and persuades managers to give it a whirl.
The nature of long-term investing renders most fads and trends irrelevant.
No investor who has spent decades investing slow-and-steady has reached retirement age, found themselves short of their goal and blamed their lack of success on the fact that they never bought, say, an Internet fund in the 1990s or a long-short fund during the financial crisis, and so on.
Don’t let emotions or what’s hot now dictate long-term investment decisions. That’s how a lot of well-intentioned “smart” moves lead to a lifetime of disappointing results.
Chuck Jaffe is senior columnist for MarketWatch and host of “MoneyLife with Chuck Jaffe.” You can reach him at email@example.com and tune in at moneylifeshow.com.